Portfolio Update

MERRILL LYNCH BRITISH SMALLER COMPANIES TRUST plc

All information is at 30 November 2007 and unaudited.

Performance at month end is calculated on a capital only basis

                          One       Three      One      Three     Five      
                          Month     Months     Year     Years     Years     
                                                                               
Net asset value           -12.9%     -8.6%     3.8%      73.9%    170.0%    
                                                                               
Share price               -16.4%    -14.0%    -3.7%      64.7%    177.6%    
                                                                               
Hoare Govett Smaller       -9.4%     -6.8%    -3.1%      28.4%     79.2%   
Companies plus AIM (ex                                                         
IC's) Index*                                                                   

Sources: BlackRock and Datastream.

*with effect from 1 September 2007 the Hoare Govett Smaller Companies plus AIM
(ex Investment companies) Index replaced the FTSE SmallCap Index (ex Investment
Companies) as the Company's benchmark. The above index has been blended to
reflect this.

At month end                                                         
                                                                     
Net asset value (debt at par value):                417.80p          
                                                                     
Net asset value (debt at fair value):               412.46p          
                                                                     
Share price:                                        329.00p          
                                                                     
Discount to NAV (debt at par value):                21.2%            
                                                                     
Discount to NAV (debt at fair value):               20.2%            
                                                                     
Net yield:                                          1.5%             
                                                                     
Total assets:                                       £219.8m          
                                                                     
Gearing:                                            8.1%             
                                                                     
Ordinary shares in issue^:                          48,649,708       

(^excluding 1,343,815 shares held in treasury).

 

Ten Largest Sector                                                             
Weightings                                                    % of Total Assets
                                                                               
Support Services                                                           16.6
                                                                               
Software & Computer Services                                               10.8
                                                                               
Industrial Engineering                                                      9.4
                                                                               
Oil & Gas Producers                                                         9.0
                                                                               
General Financial                                                           8.6
                                                                               
Industrial Metals & Mining                                                  8.0
                                                                               
Real Estate                                                                 6.1
                                                                               
Electronic & Electrical Equipment                                           4.6
                                                                               
Non-Life Insurance                                                          3.9
                                                                               
Media                                                                       3.9
                                                                           ----
                                                                               
Total                                                                      80.9
                                                                           ----

 

Ten Largest Equity Investments (in alphabetical order)                         
                                                                               
Company 
                                                                       
                                                                               
Aveva                                                                          
                                                                               
Brewin Dolphin                                                                 
                                                                               
BSS Group                                                                      
                                                                               
Dechra Pharmaceuticals                                                         
                                                                               
ITE Group                                                                      
                                                                               
Mouchel Parkman                                                                
                                                                               
Rathbone Brothers                                                              
                                                                               
Spirax-Sarco Engineering                                                       
                                                                               
Ultra Electronics                                                              
                                                                               
Victrex                                                                        
                                                                               
                                                                               

 

Commenting on the markets, Mike Prentis, representing the Investment Manager
noted:

November was a very poor month for the Company with a large absolute fall in
the NAV accompanied by marked relative underperformance. The Company's NAV fell
by 12.9% on a capital only basis; the benchmark fell by 9.4%.

The Company has maintained gearing levels at around 10% of shareholders' funds
in recent years. During November this impacted performance negatively by 0.9%.
The main stock contributors to relative underperformance in November were
holdings in Jarvis, Detica, Axon, Rathbone Brothers, Kier Group and Brewin
Dolphin. Sadly, Jarvis had a bad profit warning due to lower than expected
demand for its specialist plant, and a mix of activity in rail maintenance
which favoured overhead lines rather than track; this is less profitable for
Jarvis. This update shocked a market which believed Jarvis was recovering, and
the shares reacted badly losing 75% of their value, impacting our performance
by 0.5% during the month. After such a large fall we are disinclined to sell;
we are trying to re-assess the prospects for Jarvis. Detica, indicated that
demand from the part of their business supplying IT services to investment
banks had slowed; their main business supplying the security services remains
strong and is growing well. Axon, has been having some success selling to the
financial services sector, and although it continues to trade well, its shares
were hit as the market took the view that the financial sector may provide less
opportunity in future. Founder and Chairman, Mark Hunter, also announced his
intention to retire. Construction stocks were hit hard during the month,
especially those with housebuilding interests. Although Kier put out an
encouraging trading statement at its AGM it was affected by negative sentiment.
Fund managers struggled in the turbulent market conditions; Brewin Dolphin and
Rathbones were not immune. Brewin Dolphin announced full year results during
November; EPS increased 30%, but over the month its share price fell 19%!

On the positive side, our best performing holdings were Encore Oil, Broker
Network and Kiln. Encore Oil, announced a good drilling update in the North Sea
where it has an interest in a gas discovery. It also announced plans to demerge
its emerging gas storage interests. Broker Network, announced it was
recommending a cash offer for its shares by rival Towergate. Kiln shares were
resilient as it announced plans for a return of capital; in December it has
indicated it has received a bid approach.

Disposals included our holdings in Galliford Try, Antrim Energy, Dignity and
Oxford Instruments. Galliford, have significant housebuilding interests and we
have been keen to reduce residential construction exposure as sentiment towards
the housing sector has turned negative. Antrim shares have performed well and
we decided to take profit. Dignity is a very defensive stock, but highly rated
- we preferred to take profit. Oxford Instruments, is quite dollar dependent
and its order book is lumpy; in a cautious market the risks seemed too great
short term.

New holdings included Chemring, Genus and Air Partner, all successful growth
businesses. Chemring supplies countermeasures, decoys and explosives used by
the military forces. Genus sells breeding animals and semen to allow greater
production efficiency, milk and meat quality. Air Partner is a leading air
broker organising flights worldwide for Government, corporate and wealthy
individual customers.

Our strategy has been to focus more money on our core holdings, and in
particular on stocks, themes and sectors which are defensive but still showing
good growth characteristics. In recent weeks companies which have been trading
well have often not been immune from sharp share price falls. Often this is
because such holdings have been more liquid and easier to sell, sometimes by
forced sellers needing to raise cash quickly to fund redemptions, and also
because many of these holdings have been the better performing stocks over the
last year or so, and thus vulnerable to profit taking. In time we hope that the
quality of our holdings will begin to show through in higher share prices, but
for now markets remain highly nervous and volatile, with smallcaps in general
being firmly out of favour.

Latest information is available by typing www.blackrock.co.uk/its on the
internet, "BLRKINDEX" on Reuters, "BLRK" on Bloomberg or "8800" on Topic 3 (ICV
terminal).

18 December 2007